First food: business of taste
Good Food is First Food. It is not junk food. It is the food that connects nature and nutrition with livelihoods. This food is good for our health; it comes from the rich biodiversity of our regions; it
India
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Recession is iffy, inflation looks certain (Editorial)
Given the way world prices for food, energy and other industrial goods are moving, the potential implications on the price situation at home is of great import and cause for concern, says Saumitra Chaudhuri THISis a strange year, most likely it will get stranger. There are so many conflicting signals as to where the world economy is headed that market movements are seized of great volatility. Eminent voices see a major US recession down the road; some among them are yet willing to see an "if' about it. Other street signs
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President's address courts 'aam adami'
Skirting commitments on all controversial issues like Special Economic Zones (SEZs) and the Indo-US Civil Nuclear Agreement, the government today made it clear that pro-people, inclusive social and economic policies alone would be pursued in the last year of its five-year term. The President's address to the joint session of Parliament, traditionally a summary of the government's activities during the previous year and its priorities for the coming year, spelt out only those issues on which there was parliamentary consensus. Therefore, while showcase schemes like the expansion of the National Rural Employment Guarantee Programme and the Sarva Shiksha Abhiyan were held up as ways in which the government had embraced the poor, contentious issues like Left extremism, land reforms and labour legislation were not even mentioned in the speech. Much was made of Bharat Nirman, the National Rural Health Mission and the Jawaharlal Nehru Urban Renewal Mission. This was made possible, the government said, because of the performance of the Indian economy that has grown at close to 9 per cent per annum for four years in a row. "The historically high investment rate, of over 35 per cent of GDP, and savings rate, of over 34 per cent of GDP, symbolise a new dynamism in our economy,' the government said in the address, adding that this was all the more creditable against the background of high international oil prices and rising commodity prices. The government said the Indian consumer would continue to be insulated against high international costs of food commodities and oil, putting paid to any tinkering in the duty structure and subsidies in oil and gas. The government said outlays on agriculture, health and rural development had been tripled and together with education, these sectors account for more than half of the Central Gross Budgetary Support as compared to less than one-third in the Tenth Five-Year Plan. "This is a major structural shift in Plan priorities, aimed at reducing disparities and empowering people,' the address said. It added that attention had been focused on areas like agriculture and the target set in the National Common Minimum Programme, of doubling agricultural credit in three years, had been exceeded. However, the government did not commit itself on the implementation of the Radhakrishna report on rural indebtedness. Conscious that it was under fire on the issue of agricultural prices, the address said the government had effected "an unprecedented steep hike of over 50 per cent in the Minimum Support Price (MSP) for wheat and about 33 per cent for paddy in the last four years'. Specific sectoral successes like the legislation for unorganised labour, increase in the level of minimum wage from Rs 66 to Rs 80 per day, increase in the eligibility limit for payment of bonus to workers from Rs 3,500 to Rs 10,000 per month, and the National Rehabilitation and Resettlement Policy for people displaced from their land due to development projects, were also mentioned as landmark schemes. Despite the prime minister's repeated warnings on the performance of the power sector, the President's address only patted itself on the back for allotment of coal blocks with the capacity to support 68,000 Mw of power generation and the identification of nine sites in for setting up coal-based Ultra Mega Power Projects (UMPP) with capacity of 4,000 Mw each. Nor was there any mention of when additional spectrum would be allotted for the telecom industry, even as the government announced that the Indian telecom sector had emerged as the fastest growing in the world with the addition of over 7 million subscribers per month. On SEZs, the address said the government had already provided direct employment to about 100,000 people, with indirect employment estimated at twice as much. "They have attracted investment of over Rs 50,000 crore, and are expected to generate exports of Rs 67,000 crore this year,' the address said. Meanwhile, the third front declared that the President's speech skirted around major problems facing the country, including that of continuing farmer suicides and inflation. The United National Progressive Alliance (UNPA) leaders said they had support of UPA allies CPI(M) and CPI in their attempts to raise these issues in the public realm. According to the Samajwadi Party general secretary Amar Singh, CPI(M) leader Prakash Karat and CPI leader A B Bardhan will be participating in a UNPA-sponsored dharna on farmer suicides to coincide with the presentation of the railway budget on Tuesday.
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5% oil freight cut will not lower petrol, diesel prices
The 5% reduction in freight rates for motor fuels announced in the Railway Budget is aimed at weaning away petrol and diesel traffic from road transport but will not result in any reduction in pump prices as the oil companies will save a mere Rs 50 crore annually due to the low volumes moved through rail. The new rate will bring down the cost of moving petrol and diesel over a distance of 100 km to Rs 172.40 per tonne from Rs 181. The rate for moving motor fuels over 1,000 km would cost Rs 1,184.40 a tonne against Rs 1,243.60. For a distance of over 2,000 km, the cost would come down to Rs 2,131.80 per tonne from Rs 2,238.40. The oil companies move less than 40% of the petrol and diesel consumed in the country by rail. The price build-up of petrol and diesel factors is a notional 50% of the prevailing rail freight. The 5% cut in rail freight will therefore not have an impact on the price build-up as the new freight charge would continue to be higher than what is accounted for in the price build-up. Following this 5% cut in freight on the two auto fuels, the railways hope to wean the petroleum cargo transport business away from roads. Oil firms move over 40% of the annual consumption of petrol and diesel through pipelines, the cheapest mode, and 20% by road.
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Crude oil, gas output falls due to closure
The production of crude oil from the country's sedimentary basins fell marginally by 0.3 per cent to 2.89 million tonne (mt) in January this year compared with 2.90 mt in January 2007. The output was, however, marginally higher than the 2.88 mt in December, data released by the petroleum ministry showed. The output of natural gas in January was also down by 2.53 per cent to 2.69 billion cubic metres (bcm) compared with the 2.76 bcm in January 2007. Compared with the 2.85 bcm gas produced in December 2007, the fall in January this year was higher at 5.61 per cent. The decline in crude oil and gas production in January was due to a two-week shutdown of a production platform at Bombay High, the country's largest oil producing field. In the April-January period of the current financial year, crude oil production was 0.28 per cent higher at 28.46 mt compared with 28.38 mt in the same period of the last financial year. Natural gas production was up by 1.7 per cent to 26.89 bcm from 26.44 bcm in April-January 2006-07. In January this year, the country's oil refineries processed 13.67 mt crude oil, 5.31 per cent higher than the 12.98 mt in the year-ago month. The rise in refinery production is primarily due to private refiner Essar Oil. The quantity of oil processed at the company's refinery rose almost 161 per cent in January after the full 10.5-million-tonne-per-annum capacity was commissioned in the later part of the month. The refineries, on an average, utilised 108.4 per cent of their capacity in January 2008, against 106.9 per cent in the year-ago month. In December 2007, the capacity utilisation was 103.5 per cent. In the April-January period of the current financial year, refinery output increased 7.30 per cent to 129.78 mt, compared with 120.94 mt in the same period of the last fiscal. Average refinery capacity utilisation during the period was, however, lower at 104.2 per cent compared with 106.7 per cent in the year-ago period.
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Energy crunch
The energy crunch that the country will soon be beset with, as global fossil fuel reserves fail to adequately satisfy the growing energy needs of emerging economies, is an issue that has yet to receive the urgency it warrants. While the persistent rise in oil prices has drawn attention to the problem, the government's long-term plan to address it remains either sketchy or under wraps. Few realise that India's commercial energy consumption is now growing at almost double the world's average rate, and indeed, almost as fast as China's. The consumption base is low, admittedly. Despite being home to a fifth of all humanity, India's current share of world energy usage is only 3.9%, as compared to China's 15.6%. That OECD countries consume half the world's commercial energy supplies is a reflection of how developed those economies are. For India to gain share, as its emergence demands, "clean energies' like nuclear and hydro electricity have been widely recommended. But even here, India's global share is only 0.6% and 3.7%, respectively, compared to 84.5% and 43.5% enjoyed by OECD countries. India's hydrocarbon reserves do not inspire much confidence either. By current estimates, India's oil and gas will last only about 19 and 34 years, respectively, half the world average for these reserves. Only in coal can the country claim to have a reasonable edge, with its current reserves expected to last up to 207 years, about a third longer than the world average. But, in an interlinked world, global warming complicates the coal scenario. Indian policymakers would be well advised to chalk out a long-term plan that discreetly optimises all the options within the set of existing and emerging energy-use constraints. Overt trends and underlying pressures would have to be taken into realistic account. While global oil prices, which shot above $100 per barrel early last week, are a hot subject of discussion worldwide, natural gas and coal have also touched critical highs. Natural gas in the EU, which slid steadily for a decade-and-a-half to a low of $1.80 per million btu in the late 1990s, now rules at around $9, with spot rises spiking higher. International coal prices have nearly doubled in the last three-four years. Market forces, even if allowed to operate unhindered, would still spell high prices, given demand trends. India does have assets. Good management could see the country through.
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Indian oil basket hits a new high
The basket of crude oil that Indian refiners buy hit a new high of $96 per barrel on Wednesday, the latest day for which data are available. The basket, which comprises Oman-Dubai sour (high sulphur) grade crude oil and Brent dated sweet (low sulphur) crude oil in a 61.4:38.6 ratio, has averaged $91.91 per barrel this month compared with $89.52 per barrel in January and $87.92 in December. The price of the Indian basket of crude oil has been reflecting the soaring futures price of oil in the New York Mercantile Exchange, which hit an all-time high of $102.08 per barrel on Wednesday, before falling to below $100 per barrel at the end of the day. CRUDE GAINS Price of Indian crude oil basket (in $/bbl) Feb avg (so far) 91.91 Jan avg 89.52 Dec avg 87.92 Highest price (Feb 27, 08) 96.00 Previous highest (Feb 20, 08) 94.96 US light sweet oil for April delivery was trading at just over $99 per barrel in New York on Thursday. The price of Brent crude oil, the global benchmark primarily produced from the North Sea, has also been trading at over $99 per barrel in London.
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Boucher visit to focus on deal
U.S. Assistant Secretary of State Richard Boucher will undertake a two-day visit here from Tuesday during which the two sides are expected to review progress on implementation of the civil nuclear deal. Mr. Boucher, who is in charge of South Asia, will hold talks with his counterpart, Gayatri Kumar, Joint Secretary in the Ministry of External Affairs, and is expected to meet Foreign Secretary Shivshankar Menon, sources told PTI on Sunday. The civil nuclear agreement issue is likely to dominate the discussions and the Indian side is expected to provide an update on its talks with the International Atomic Energy Agency (IAEA) on the safeguards agreement. After the fifth round of negotiations between India and IAEA that concluded in Vienna last Thursday, the two sides reported "considerable progress' and moved closer to the agreed text of the agreement. Finalisation of the safeguards agreement with the IAEA is a key step towards operationalisation of the India-U.S. nuclear deal. This has to be followed by the waiver by the Nuclear Suppliers' Group (NSG) to allow India to have civil nuclear cooperation with the international community. The government is expected to spell out its plans on the issue in Parliament on Monday when External Affairs Minister Pranab Mukherjee makes a statement. The sources said that Mr. Mukherjee, who would be making the statement on
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ONGC rejects CAG observations
Flagship explorer Oil and Natural Gas Corporation has drilled several holes in CAG's recent observations, first reported by TOI, that ONGC was
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No fuel surcharge hike for this month
Domestic carriers have decided against hiking fuel surcharge, that presently is Rs 1,650 per passenger, following the latest increase in jet fuel prices for this month. This move comes as March is anyways a lean travel season when airlines offer attractive schemes like low basic fares or discounts to lure fliers. Secondly, airlines did not reduce this surcharge even as aviation turbine fuel (ATF) witnessed price falls in past two months. So without passing on the benefit of lower prices to passengers, they find it it hard to pass on extra cost with the latest hike. Oil PSUs change ATF prices every month-end depending on global prices of crude as making petrol and diesel dearer is a politically sensitive decision and air travellers have to bear this burden. ATF prices touched a record high last December when airlines raised fuel surcharge to Rs 1,650 and coupled with other cess and taxes, the fixed cost for each ticket became Rs 2,025. In January and February, ATF prices saw reductions but airlines refsued to react, calling this an
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Budget 2008-09 - Popular or Profligate?
While we all get ready for elections, fiscal rectitude will be a priority for the next government. The curtains have finally come down. The Budget has provided a clear indication of things to come. In a year when 11 states will go for elections and the sword of Damocles for the general elections hanging, a populist fiscal stance is only to be expected. Unfortunately, a populist Budget never fully appeases anyone. Those who get the sops want more and those who do not get them get more upset. This Budget attempts to target the benefits to sections of farmers and urban middle class and when the Pay Commission report is submitted, to the government employees. It is yet to be seen whether the largesse will translate into votes, but surely, these measures will impact for several more years. The Economic Survey was candid about the need for austerity in the prevailing environment, but the Budget does not seem to care. The Budget for 2008-09 has been formulated in the background of moderating growth, a difficult international environment, unimpressive agricultural performance, rising world oil prices, surging capital flows and continued infrastructure bottlenecks. Austere fiscal policy was required not only to provide a counter-cyclical stance but also to keep interest rates low and manage capital inflows better. Acceleration in growth required significant augmenting infrastructure investment. Rationalising subsidies and increase in investment were necessary to accelerate the agricultural growth rate to 4 per cent. It was also hoped that the finance minister would initiate reforms in the excise tax regime to move towards a goods and services tax (GST). To be fair, higher allocations have been made in the Budget for some of the infrastructure sectors though capital expenditure as a ratio of GDP shows a decline. The energy sector's allocation is 30 per cent higher, the roads and transport sector's 22 per cent higher, and communication sector's 32 per cent higher. There are substantially higher allocations to the six components of the Bharat Nirman Programme, which are in the nature of improving connectivity and rural infrastructure. The total plan expenditure in the Union Budget shows an increase of 17.3 per cent over the revised estimate for 2007-08, though this is just about one-half of the level in 2004-05. However, plan capital expenditure shows an increase of just 5.3 per cent, and at 0.6 per cent of GDP this is worrisome. Thus, there has been a significant increase in plan expenditure, but not for creating infrastructure but for various schemes, most of which are in the states' domain. The funds for these programmes are transferred directly to the third level of government or other implementing agencies because the central government wants to claim ownership and clearly, in many places accountability and delivery systems have yet to be put in place. Economists judge the Budget on the basis of its likely macroeconomic impact and policy signals it gives. In the context of surge in capital flows, it was necessary to keep the interest rates low and allow the RBI to undertake market stabilisation to ensure relatively stable exchange rates at least in the short term. That called for containing the fiscal deficit at even lower than the target set under the FRBM Act. For 2007-08, thanks to the buoyant revenues from direct taxes, it was possible to overreach the target, though some expenditure liabilities, particularly on subsidies, have not been fully taken account of. The revenue deficit for 2008-09 relative to GDP is estimated at 1 per cent and the fiscal deficit at 2.5 per cent. Indeed, although phasing out the revenue deficit is mandated in the FRBM Act, it was unrealistic to expect reduction in the deficit by 1.5 percentage points in one year. Budgets are like fashion girls on the ramp; what they hide raises more curiosity than what they reveal. However, most observers have been quick to point out that the fiscal deficit is clearly an underestimate for it does not take account of some important liabilities. First, the Budget estimates do not include the impact of implementing the Sixth Pay Commission. It may be recalled that it was the pay revision in 1997-98 that led to an era of high fiscal imbalances and this alone could add to the fiscal deficit by about half a percentage point of GDP. The second important omission is provision for loan waiver. This is estimated to cost Rs 60,000 crore and or a little over 1 per cent of GDP. That is not all. Despite claims to transparency, the subsidy numbers clearly look under-budgeted. In the case of fertilisers, for example, the Budget estimate for 2008-09 at Rs 30,986 crore is close to the revised estimate for 2007-08 (Rs 30,501 crore). Of course, this does not take account of the Rs 7,500 crore bonds given to fertiliser companies. That is not all. The subsidy accruing to fertiliser companies based on the estimated sale of fertiliser would not be less than Rs 60,000 crore in 2007-08 and to that extent the deficit numbers for 2007-08 are suspect. This is the problem with a Budget prepared on the basis of cash and not accrual accounting. Finally, it is not clear how the finance minister will find an additional Rs 10,000 crore for Gross Budgetary Support for the plan when revenues are estimated to grow at 17.5 per cent and direct taxes at close to 20 per cent even after taking into account the increase in the exemption limit in personal income tax and reduction in excise duties. By this reckoning, the fiscal deficit and off budget liabilities should at least be higher by another 2 per cent of GDP. On changes in tax policy, reduction in the CENVAT rate to 14 per cent, increase in the threshold for service tax and reduction in the Central Sales Tax would help in eventually introducing GST. But the measures stop there. This was the opportunity to extend the base of service tax to all services and universalise input tax credit to convert the CENVAT into a manufacturing stage GST. The tinkering in excise rates has continued and this does not make sense. The policy makers are still to understand that crowding the tax policy with too many objectives only adds to administrative complexity and creates pressure groups. On the whole, difficult days are ahead and while we all get ready for elections, fiscal rectitude will be a priority for the next government, whoever comes to power!